Kentucky filing status follows the filer's own marital status

changelog.d/ky-separate-ignores-dependent-separation.fixed.md

@@ -0,0 +1 @@
+Kentucky filing status now follows the filer's own federal filing status, so a separated dependent no longer makes an unmarried filer file separately, and a separated filer who files federal head of household uses Kentucky Filing Status 1 (Single).

policyengine_us/tests/policy/baseline/gov/states/ky/tax/income/ky_filing_status.yaml

@@ -7,7 +7,7 @@
   output:
     ky_filing_status: SINGLE
 
-- name: Joint 
+- name: Joint
   period: 2023
   input:
     is_tax_unit_spouse: true
@@ -16,11 +16,199 @@
   output:
     ky_filing_status: JOINT
 
-- name: Joint 
+- name: Separated filer with no spouse in the tax unit
   period: 2023
   input:
     is_tax_unit_spouse: false
     is_separated: true
     state_code: KY
   output:
     ky_filing_status: SEPARATE
+
+- name: A separated dependent does not make a single parent file separately.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 45
+      dependent:
+        age: 18
+        is_tax_unit_dependent: true
+        is_separated: true
+    tax_units:
+      tax_unit:
+        members: [parent, dependent]
+        american_opportunity_credit: 2_000
+        lifetime_learning_credit: 0
+    households:
+      household:
+        members: [parent, dependent]
+        state_code: KY
+  output:
+    # KRS 141.066(1)(d) uses the IRC 7703 marital status of the filer. The
+    # parent is unmarried, so Form 740 Filing Status 1 (Single) applies.
+    ky_filing_status: SINGLE
+    # KRS 141.069(4) limits the tuition credit only for a married taxpayer.
+    ky_tuition_tax_credit_eligible: true
+    # 25% of the 2,000 federal education credit.
+    ky_tuition_tax_credit_potential: 500
+
+- name: A separated parent who files federal head of household uses Kentucky Filing Status 1.
+  period: 2025
+  input:
+    people:
+      parent:
+        age: 38
+        is_tax_unit_head: true
+        is_separated: true
+      child:
+        age: 6
+        is_tax_unit_dependent: true
+    tax_units:
+      tax_unit:
+        members: [parent, child]
+    households:
+      household:
+        members: [parent, child]
+        state_code: KY
+  output:
+    # IRC 7703(b) treats the parent as unmarried, so the parent files as head of household.
+    filing_status: HEAD_OF_HOUSEHOLD
+    # Form 740 instructions: Filing Status 1 (Single) covers federal head of household filers.
+    ky_filing_status: SINGLE
+    ky_tuition_tax_credit_eligible: true
+
+- name: A separated filer with only a qualifying relative files separately.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        is_tax_unit_head: true
+        is_separated: true
+      grandparent:
+        age: 78
+        is_tax_unit_dependent: true
+        is_related_to_head_or_spouse: true
+    tax_units:
+      tax_unit:
+        members: [head, grandparent]
+    households:
+      household:
+        members: [head, grandparent]
+        state_code: KY
+  output:
+    # IRC 7703(b) needs a child, so the head stays married and files separately.
+    filing_status: SEPARATE
+    ky_filing_status: SEPARATE
+    ky_tuition_tax_credit_eligible: false
+
+- name: A separated dependent does not stop a married couple filing jointly.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        is_tax_unit_head: true
+      spouse:
+        age: 38
+        is_tax_unit_spouse: true
+      dependent:
+        age: 18
+        is_tax_unit_dependent: true
+        is_separated: true
+    tax_units:
+      tax_unit:
+        members: [head, spouse, dependent]
+    households:
+      household:
+        members: [head, spouse, dependent]
+        state_code: KY
+  output:
+    # Roles are inputs, so this case tests Kentucky filing status alone.
+    ky_filing_status: JOINT
+    ky_tuition_tax_credit_eligible: true
+
+- name: Spouses who file separate federal returns may file a combined Kentucky return.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        is_tax_unit_head: true
+      spouse:
+        age: 38
+        is_tax_unit_spouse: true
+    tax_units:
+      tax_unit:
+        members: [head, spouse]
+        filing_status: SEPARATE
+    households:
+      household:
+        members: [head, spouse]
+        state_code: KY
+  output:
+    # Form 740 instructions: spouses may file separately on a combined return
+    # whether they filed jointly or separately for federal purposes. Both
+    # spouses in one tax unit is that combined return, not Filing Status 4.
+    ky_filing_status: JOINT
+    # KRS 141.069(4) allows the credit on a combined return.
+    ky_tuition_tax_credit_eligible: true
+
+- name: A married filer who files a separate federal return alone files Kentucky separate returns.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+    tax_units:
+      tax_unit:
+        members: [head]
+        filing_status: SEPARATE
+    households:
+      household:
+        members: [head]
+        state_code: KY
+  output:
+    # The spouse is not in the tax unit, so this is Filing Status 4.
+    ky_filing_status: SEPARATE
+    # KRS 141.069(4) bars the credit on separate returns.
+    ky_tuition_tax_credit_eligible: false
+
+- name: A supplied federal head of household status uses Kentucky Filing Status 1.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+        is_separated: true
+    tax_units:
+      tax_unit:
+        members: [head]
+        filing_status: HEAD_OF_HOUSEHOLD
+    households:
+      household:
+        members: [head]
+        state_code: KY
+  output:
+    ky_filing_status: SINGLE
+    ky_tuition_tax_credit_eligible: true
+
+- name: A supplied federal surviving spouse status uses Kentucky Filing Status 1.
+  period: 2025
+  input:
+    people:
+      head:
+        age: 40
+    tax_units:
+      tax_unit:
+        members: [head]
+        filing_status: SURVIVING_SPOUSE
+    households:
+      household:
+        members: [head]
+        state_code: KY
+  output:
+    # Form 740 instructions: federal "Qualifying Widow(er)" filers use Single.
+    ky_filing_status: SINGLE
+    ky_tuition_tax_credit_eligible: true

policyengine_us/variables/gov/states/ky/tax/income/credits/tuition_tax/ky_tuition_tax_credit_eligible.py

@@ -7,9 +7,11 @@ class ky_tuition_tax_credit_eligible(Variable):
     label = "Eligible for the Kentucky tuition tax credit"  # Form 8863-K
     unit = USD
     definition_period = YEAR
+    reference = "https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=29060"  # KRS 141.069(4)
     defined_for = StateCode.KY
 
     def formula(tax_unit, period, parameters):
         filing_status = tax_unit("ky_filing_status", period)
-        # Married filing separate filers are ineligible.
+        # A taxpayer who is married under IRC 7703 is ineligible when filing a
+        # separate return (Filing Status 4).
         return filing_status != filing_status.possible_values.SEPARATE

policyengine_us/variables/gov/states/ky/tax/income/ky_filing_status.py

@@ -14,20 +14,31 @@ class ky_filing_status(Variable):
     default_value = KyFilingStatus.SINGLE
     definition_period = YEAR
     reference = (
-        "https://codes.findlaw.com/ky/title-xi-revenue-and-taxation/ky-rev-st-sect-141-066.html",  # Section (1), (c) & (d)
+        "https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=49188",  # KRS 141.066(1)(c) & (d)
         "https://revenue.ky.gov/Forms/740%20Packet%20Instructions%205-9-23.pdf#page=11",
+        "https://revenue.ky.gov/Forms/740%20instructions%20packet%20(2024).pdf#page=13",
     )
     label = "Filing status for the tax unit in Kentucky"
     defined_for = StateCode.KY
 
     def formula(tax_unit, period, parameters):
-        has_spouse = add(tax_unit, period, ["is_tax_unit_spouse"]) > 0
-        person = tax_unit.members
-        is_separated = tax_unit.any(person("is_separated", period))
+        # Kentucky follows the filer's own federal marital status (IRC 7703),
+        # so a separated dependent does not make the filer file separately.
+        # Federal head of household and surviving spouse filers use
+        # Kentucky Filing Status 1 (Single).
+        filing_status = tax_unit("filing_status", period)
+        statuses = filing_status.possible_values
+        # Spouses on one return file jointly or separately on a combined
+        # return, which Kentucky allows after federal separate returns, so a
+        # spouse in the tax unit means a joint or combined return. Separate
+        # returns (Filing Status 4) leave the spouse out of the tax unit.
+        joint_or_combined = (filing_status == statuses.JOINT) | tax_unit(
+            "tax_unit_married", period
+        )
         return select(
             [
-                has_spouse,
-                is_separated,
+                joint_or_combined,
+                filing_status == statuses.SEPARATE,
             ],
             [
                 KyFilingStatus.JOINT,